Glitches, Ad Worries Darken Facebook Post-IPO Glow
It's tough to predict the twists and turns Facebook's stock will take in the months and years ahead. But after its first full day of trading, experts are weighing in on the social media darling's Wall Street debut.
The verdict: mildly disappointing.
After its debut on Friday, Facebook's stock settled near its offering price of $38 after a very modest "pop" that crested early and saw the stock trade above $40. As of this writing, the stock is trading near $32, roughly 16 percent lower than its $38 initial price.
NASDAQ's trading systems were overwhelmed on Friday, leaving many investors out of the loop for hours at time. In an era of near-instant trade confirmations, the glitch not only proved to be a major inconvenience –- and for some investors, an opportunity missed -- it also exposed concerns about how well NASDAQ's computerized systems can handle big IPOs in the future.
Brokers were essentially "flying blind," according to reports. Some expressed concerned that these levels of paralysis crop up in wild market swings, not trades of a single equity security.
Robert Greifeld, NASDAQ's CEO, said that during the course of the investigation, the malfunction was traced to how order cancellations are processed, according to a report in Reuters. Currently, the exchange is working on new procedures to prevent a repeat of the problems that plagued investors who wanted to take part in the historic IPO and is planning to devote $13 million to settle bad trades.
Thus far, NASDAQ has traced the problem to the IPO Cross component of its OMX trading system. During the crush of bids, a race condition occurred. Race conditions can cause software to lock up when two or more processes or threads that are reliant on a shared resource generate errors by attempting to access or change the shared resource at the same time.
Meanwhile, the Securities and Exchange Commission (SEC) is looking into the matter. What's more, the Financial Industry Regulatory Authority (FINRA) is assessing the situation for investors that missed out on early trades due to the glitch.
Facebook and its underwriters apparently didn't help matters by selling more shares than they had initially planned for a price at the high end of the estimated IPO range. Normally companies going public take less than they could get to ensure an opening day pop and more support for the stock.
Broken Ads and Mobile Apps?
GM sent pre-IPO jitters into overdrive by announcing that it was pulling its advertising just days before Facebook went public. According to the automaker, it got very little in return for the $10 million that it spent on Facebook advertising. Mainly, GM determined that Facebook advertising was ineffective in influencing consumer behavior.
In 2011, GM spent $1.8 billion in advertising, making it not only the third largest advertiser in the United States, but also a big influencer.
It doesn't help that Facebook has a spotty record on mobile platforms. Underwhelming mobile apps are only part of the problem. Mainly, Facebook is discovering that its advertising solutions are ill suited for a user base that's increasingly engaging the social network via mobile devices.
There are signs, however, that the Facebook is making an effort to change course.
Global Equities Research analysts report that Facebook is working on two new mobile ad formats. The first is a pilot of a non-intrusive, low-CPM ad that is served with event notifications. The other displays an ad as Facebook apps are launched or shut down. This version could carry a CPM of $5, according to the financial research firm, and are likely to target the entertainment and gaming category.
There is also reason to believe that GM doesn't have the final word on Facebook advertising. Global Equities Research says that in its talks with online advertisers, YouTube and Facebook are getting more of their display ad dollars at the cost of Yahoo.